• U.S. natural gas futures surge as critical weather data trends colder
  • EIA disappoints with smaller-than-expected 73 Bcf storage withdrawal
  • Mild weather on tap for the next several days; cash slides

Natural Gas Futures Soar As Weather Data Keeps Adding Demand; Cash Slips

With back-to-back gains in projected demand showing up in the latest European weather models, natural gas bulls were back on the offensive Thursday. The January Nymex gas futures contract shot up 8.5 cents to settle at $2.328. February jumped 7.7 cents to $2.320.

Spot gas prices, however, were lower across most of the United States as milder weather was set to arrive and linger for several days. The NGI Spot Gas National Avg. fell 16.5 cents to $2.185.

After some major flips back and forth in the American Global Forecast System (GFS) weather model, traders had been waiting for more clarity from the more-trusted European model. After adding 11 heating degree days (HDD) overnight, the model gained another 5 HDDs in its afternoon run Thursday.

“Bulls will likely be satisfied to see demand added in the latest European model, but it would simply look much more bullish if the 11- to 15-day forecast wasn't so bearish,” NatGasWeather said. “The overnight data will be important to see what weather trends it shows ahead of what looks to be another dangerous weekend to hold.”

The swing to a chillier outlook provided further momentum to natural gas futures, which were already more than a nickel higher at the front of the curve despite what was perceived as a bearish storage report.

The U.S. Energy Information Administration (EIA) reported a 73 Bcf withdrawal from natural gas storage inventories for the week ending Dec. 6, a figure that came in slightly smaller than market expectations.

The reported draw also came in a couple ticks below the year-ago withdrawal of 75 Bcf, but it was several Bcf above the 68 Bcf five-year average pull, according to EIA.

Traders appeared disappointed in the EIA data, with prices trimming earlier gains before the more supportive weather data renewed buying interest.

Bespoke Weather Services, which had estimated an 80 Bcf withdrawal, said it is possible that it did not give the holiday weekend enough credit for limiting the draw, as the latest number included the weekend after Thanksgiving. If that is not the case, however, the balance tightening is not as notable as the firm’s data has been indicating.

“Next week’s number will tell us much more, clear of any holiday, etc.,” Bespoke chief meteorologist Brian Lovern said. “We currently have a 93 draw for next week, which still does look tighter, but if this winds up down into the 80s, that will confirm that balance tightening is overstated.”

Broken down by region, the Midwest posted the largest withdrawal of 27 Bcf, while the East drew down inventories by 24 Bcf, according to EIA. Pacific stocks were down by 10 Bcf, and the Mountain was down by 7 Bcf. The South Central region posted a net withdrawal of 6 Bcf, which included an 11 Bcf draw from nonsalt facilities and a 5 Bcf injection into salts.

Total working gas in storage as of Dec. 6 stood at 3,518 Bcf, 593 Bcf above last year at this time and 14 Bcf below the five-year average, according to EIA.

Genscape Inc. nailed the storage print. Its estimate is a seasonally adjusted composite of its pipeline model, which showed a 75 Bcf pull, and its daily supply/demand (S&D) model, which showed a 70 Bcf withdrawal.

“Our S&D model shows net supply was flat to the week prior as a production decline of 0.3 Bcf/d was more than offset by increased imports from Canada,” Genscape senior natural gas analyst Eric Fell said. “Net demand (domestic plus exports) was estimated to have averaged 108 Bcf/d, about 8 Bcf/d greater than the Thanksgiving holiday week prior.”

The EIA’s 73 Bcf withdrawal reflects a market that is about 2.7 Bcf/d looser than the five-year same-date average, according to Genscape.

Excluding weather-related demand, Thursday’s withdrawal implies that market demand was 0.14 Bcf/d looser versus the same week last year and has averaged 0.21 Bcf/d looser over the past four weeks, Raymond James & Associates analysts said.

Early indications are for a sub-100 Bcf withdrawal for the next EIA storage report. This would compare to 132 Bcf withdrawal in the same week last year and would bring about a further expansion in the year/year surplus.

But with production remaining well off recent highs, increased liquefied natural gas demand and stronger power burns, the floor for prices should be raised somewhat, all else being equal, Bespoke said.

Sea of Red

While the long-term weather outlook is looking more promising for natural gas prices, near-term forecasts for mild weather sent spot gas prices lower on Thursday.

High pressure was forecast to build across the southern and eastern United States beginning Thursday afternoon and continuing through Saturday, with highs again moving to the upper 40s to 70s for a swing back to light national demand, according to NatGasWeather.

However, strong national demand is expected to return Monday through Wednesday as a fresh cold shot is forecast to track across the northern and central United States, the forecaster said. The blast of frigid air is expected to send overnight temperatures into the single digits to 20s in most areas, and into the 30s into Texas and the South.

It's a second cold shot late next week where the European model has added demand in recent runs, “seeing a bit stronger cooling across the Northeast to add demand and close the gap on the still much colder GFS,” the forecaster said.

Until then, however, cash bled nearly across the board, with some of the largest decreases occurring in southern California, but with Malin slipping just 7.0 cents to $2.510.

In the Rockies, Kingsgate spot gas fell 12.0 cents to $2.420.

The overall weakness in the market was too much to bear for West Texas pricing hubs, which had been relatively strong in recent days. On Thursday, Waha slipped 2.5 cents to $1.475.

In the Midcontinent, prices were mixed but shifted a few cents at the majority of pricing hubs. Southern Star jumped 9.0 cents to $1.990.

Henry Hub cash stayed flat at $2.260, while Dominion Energy Cove Point plunged 48.5 cents to $2.365. The dramatic slide at Cove Point comes even as feed gas deliveries to the LNG export terminal remained stable at 752,700 Dth, according to NGI’s U.S. LNG Export Tracker.

However, other markets along the East Coast also posted substantial losses. Algonquin Citygate cash tumbled $2.025 to average $2.455, while Transco Zone 6 non-NY dropped 69.0 cents to $2.150.